Jenny Welander Wadström expert commentator in Stockholm University webinar on ECJ case law – key takeaways
The interpretation and practical implications of recent ground-breaking case law from the European Court of Justice (ECJ) regarding the application of the transfer of undertaking regulations in connection with a change of service provider was the subject for a recent webinar hosted by Stockholm University. Partner Jenny Welander Wadström participated as expert commentator, together with Professor Johann Mulder from Oslo University and Adjunkt Annika Blekemo from Stockholm University.
The main takeaways from the webinar were that the degree of foreseeability of the outcome produced by the rules of the Directive 2001/23/EC of 12 March 2001 is low, which is also evidenced by the huge number of cases concerning the Directive in the ECJ each year, and the fact that the new case law gives rise to many practical issues that lead to challenges – in particular as there normally is no agreement in place between the transferee and the transferor in a change of service provider scenario.
The first case that was discussed was C-298/18, Grafe and Pohle. In this case, a local authority in Germany issued a call for tender of their bus services. As a result, the bus services were transferred from one company to another. The company that had previously operated the bus services gave all employees notice of termination of their employment and ceased its business operations. The acquiring company recruited many but not all bus drivers from the transferring company, but did not take over any tangible assets, e.g. buses or operating facilities. In this case, the buses where not transferred as the call for tender from the local authority included new technical requirements that the buses would not meet during the full term of the agreement (e.g. a certain environmental classification of the buses was required).
In a similar case, C-172/99, Liikenne, the ECJ had concluded that it was not a transfer of business in accordance with the Directive when bus services were transferred from one company to another without any tangible assets being transferred, i.e. most importantly when no buses were taken over. In light of the Liikenne judgment, the question to the ECJ from the national court was whether the national court could conclude that the transfer of bus services between the two companies was a transfer of business in accordance with the Directive, even if no tangible assets, such as e.g. the buses, had been transferred.
The ECJ concluded that, when determining whether or not a transfer of business in accordance with the Directive has taken place, the national court must decide if the transferred business has retained its identity. In order to determine the question of business identity, the national court must consider all facts characterizing the transaction concerned, e.g. the type of undertaking or business concerned, whether or not the business’ tangible assets, such as buildings and movable property, are being transferred, the value of the business’ intangible assets at the time of the transfer etc. (Spijkers 24/85). The ECJ further explained that the Liikenne judgment should not be construed to entail that the transfer of tangible assets (e.g. buses) is the sole determining factor of whether or not a transfer of business in accordance with the Directive has taken place. Hence, if the tangible assets are not transferred due to any legal, environmental or technical regulations, the national court may conclude that a transfer of business has taken place, based on an assessment of the other abovementioned criteria, e.g. the takeover of a majority of the employees, whether or not the customers are transferred, the degree of similarity between the activities carried out, etc.
The second case that was discussed during the webinar was C-344/18, ISS Facility Services NV v Sonia Govaerts and Atalian NV. In this case, the city of Gent issued a call for tender relating to the city’s cleaning services. The city was divided into three separate cleaning districts. Before the call for tender was issued, all cleaning districts were handled by the same company. After the call for tender, two new companies were awarded the cleaning districts, one of them being awarded two districts and the other one district. The question for the ECJ was how to interpret the Directive in relation to an employee carrying out her work duties in all three districts when the business is being transferred to two separate companies following a transfer of business.
The ECJ concluded, firstly, that the Directive is applicable even if a transfer is made to more than one company. Further, with the interest of the acquiring companies in mind, the ECJ found that the company that takes over the majority of the business (in this case the company that took over two districts) is not obliged to take over all rights and obligations of the employee who has worked in all districts prior to the transfer. Instead, the employment agreement is to be transferred to each of the acquiring companies, in proportion to the tasks performed by the employee concerned, provided that the division of the contract of employment as a result of the transfer is possible and does not cause a deterioration in the working conditions or adversely affect the safeguarding of the workers’ rights, guaranteed by the Directive. In the event the latter requirement is fulfilled, the acquiring companies would be responsible for terminating the employee’s employment, even if the termination were to be initiated by the employee.
Conclusions and key takeaways
From a practical perspective, Grafe and Pohle raises questions regarding the predictability of transfers of businesses for companies in the transport industry. As a call for tenders in respect of transport services is an extensive business and changes in services providers are common, it is likely that the transport industry has established certain principles for handling transfers of businesses which will now have to be reversed.
Going forward, the fact that the most important tangible asset, the buses, are not transferred may not entail that a transfer of business did not occur. Instead, the underlying reason for why the assets were not transferred will have to be considered in order to determine whether or not a transfer of business, in accordance with the Directive, has occurred. This means that a more sophisticated assessment will have to be made, which will require even more information being exchanged between the service providers than before and greater importance being afforded to the transfer of personnel in capital-intense businesses as well.
In the ISS case, the main focus in the webinar was how a part-time job divided between the service providers would work in practice. Practical issues, such as the planning of the employee’s schedule, vacation and location, would have to be resolved, which may entail that the service providers need to cooperate post-transfer as well. In addition, the fundamental duty of loyalty, handling of trade secrets and competition regulations may give rise to challenges that are impossible to overcome.
In such a scenario, the obligation for the new service provider to cover the cost for the termination of employees that cannot be transferred will be relevant. It is not entirely clear if this obligation also applies if the employee exercises their right to oppose the transfer for other reasons or if the potential cost should be borne by the former service provider in such a situation, as has been the case up until now.
The Directive is a complex piece of legislation which has been the subject of many cases in the ECJ. In order to determine whether the Directive is applicable in the case of a particular transaction, an extensive analysis of the circumstances in each transaction must be carried out and a thorough knowledge of relevant case law is needed. As the level of foreseeability is low and the degree of complexity and risk of disputes is high, contractual arrangements are sometimes the best way to proceed in these types of transactions for all parties involved. The company ordering the services is usually in the best position to initiate such contractual set-ups.